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Crisis escalates as insurrection breaks German control of Europe

Wednesday, May 9, 2012

By Paul Martin

The political dam has broken in Europe. German Chancellor Angela Merkel no longer has enough allies in the club of EU prime ministers to impose her hairshirt agenda. Her methodical plans are disintegrating on every front.

The immediate fate of Greece – and the euro – is in the hands of a boyish motorcycle Marxist. Syriza leader deal Alexis Tsipras has vowed to tear up the hated Memorandum, as the EU-IMF “troika” loan package is known.

He showed no sign of backing off as he met his country’s president and began talks on the formation of an implausible Left front. “The popular verdict clearly renders the bailout null and void,” he said.

To those who warn that such defiance means an unstoppable lurch towards full default, a banking crash and EMU expulsion, he retorts that Greece has the “ultimate weapon”. It can bring down the whole European system if EU leaders refuse to soften the terms.

This bluff may be called. “Patience among the creditor countries is running out,” said Blanka Kolenikova from IHS Global Insight. Germany’s media says finance minister Wolfgang Schauble is itching to force Greece out of the euro as a salutary example, sure that Europe is strong enough to withstand the shock. This, in turn, is an illusion waiting to be punctured.

Arnaud Mares from Morgan Stanley said a Greek exit would set off “massive deposit flight” from all the vulnerable EMU states. “It could unravel the single currency altogether.”